Purpose: The University may lease plant or equipment as required by normal operations.

Policy

Financial Services is responsible for classifying leases in the year of their origination as either operating or capital leases in accordance with the applicable financial accounting guidance.

Financial Services is responsible for accounting for all leases during the life of the lease in accordance with the applicable financial accounting guidance. Generally, those standards provide that:

Lease payments for leases classified as operating leases shall be recorded as an expenditure paid over the life of the lease.

Leases classified as capital leases shall be recorded as an asset and a liability equal to the lesser of either the fair market value of the asset at the inception of the lease or the present value of the lease payments during the life of the lease.

Purpose: To establish a capitalization policy for financial accounting purposes for leasehold improvements to land and buildings.

Policy

This policy applies only to improvements made to leased land and buildings used in the operation of the University.

Financial Services is responsible for accounting for all leasehold improvements in accordance with the applicable financial accounting guidance.

This policy applies to expenditures made to improve the usefulness or the life of leased property classified as an operating lease, such as: a) long-term leases that provide that any improvements made to the leased property revert to the lessor at the end of the life of the lease or b) if the lessee constructs new buildings on leased land or reconstructs and improves existing buildings, the lessee has the right to use such facilities during the life of the lease, but they become the property of the lessor when the lease expires.

Capitalized leasehold improvement assets include the following:

Land Improvements - Land improvements to be capitalized as leasehold improvements include the cost of landscape, utility systems, surface parking lots, and outdoor public recreational fields having a cost in excess of $100,000.

Buildings - Cost to be capitalized includes all costs related to construction. Construction costs include but are not limited to the cost of professional services, materials, labor, and site preparation.

Building Improvements - Building improvements to be capitalized as leasehold improvements are significant alterations or structural changes that cost in excess of $100,000.

At the time the leasehold improvement is completed and has been put in service, all construction costs will be depreciated in accordance with applicable University Policy (See Financial Policy No. 1004.2).